AIG needs unified plan to recover: Greenberg

Maurice Greenberg, the chairman and chief executive of C. V. Starr and Company, speaks at the Reuters Finance Summit in New York, November 12, 2008.

NEW YORK (Reuters) - Former American International Group Inc (AIG.N) CEO Maurice "Hank" Greenberg said the insurer could fall apart unless management quickly came up with a unified recovery plan.

"You can't hold (together) an organization that is drifting in the way it is," he said in an interview on Thursday. "It can be fixed now. I don't know if that will be true in two to three months from now."

In his latest criticism of the insurer's management, Greenberg said AIG executives were at cross purposes.

Chief Executive Edward Liddy has said he will retain AIG's global property casualty insurance operations, and a stake in some of its flagship Asian life insurance operations.

AIG, once the world's largest insurer, plans to shed other units to repay a $152 billion rescue package from the U.S. government that saved it from collapse last month under bad mortgage bets.

However, Paula Rosput Reynolds, hired in October to oversee AIG's restructuring, told the Wall Street Journal earlier this week that, if necessary, she would sell off every part of the company to repay the government.

"That is an outrage," Greenberg said of the plan by Reynolds, former CEO of auto insurer Safeco. "All that does is tell everyone working there to start looking for a job, and why would business hang around?

"It was bad enough that AIG was going to be shrunken."

WHAT'S NEXT?

Greenberg, forced out of AIG in 2005 amid an accounting scandal, said more revisions to the government's rescue plan were necessary or the insurer would soon be beyond repair.

Greenberg and companies he controls, C.V. Starr and Starr International, were AIG's largest shareholders before the U.S. bailout, which gave the government a 79.9 percent stake in the New York-based company.

He said the government needs to guarantee contracts AIG wrote to cover mortgage debt, and cut its stake to one-fourth or less if it wants AIG to survive. The guarantees, he said -- "not cash" -- should be similar to ones extended to Citigroup (C.N), in which the government would shoulder most losses on about $306 billion of the bank's risky assets.

"It is crucial there be a plan C," or a third revision to a bailout first put in place in September, Greenberg said.

The initial $85 billion U.S. bailout plan was revised in November to give AIG additional funding, easier terms and a promise to buy mortgage liabilities that have led the insurer to post losses of $42.5 billion over the past four quarters.

He said such measures and a strong management plan would do away with the need to sell off any AIG assets.

AIG paid $1.6 billion to regulators and lawmakers over allegations it had improperly accounted for an insurance contract under the watch of Greenberg, who built AIG into the world's biggest insurer over nearly four decades.

Greenberg, who has denied any wrongdoing, is also fighting civil charges brought in 2005 by then-New York Attorney General Eliot Spitzer and several lawsuits by AIG.

On Wednesday, a New York state judge ruled that a lawsuit brought by AIG could proceed. The suit alleges that Greenberg and others breached their fiduciary duties by holding on to AIG shares that had previously been used to fund a deferred compensation program.

Greenberg declined to comment on the suit.

(Reporting by Lilla Zuill; editing by Richard Chang)